You know that retirement planning is important, but should you be putting away for retirement while you still have a lot of debt? In most cases, it’s best to work on planning for retirement and debt eliminating. However, the amount you put toward each option will depend on many different factors. For example, your age may make your retirement fund a priority or the amount of debt owed could make paying down debt the greater priority. Here’s a closer look at saving for retirement and paying off debt, as well as a few tips to help you decide how much you should be putting towards each.
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When Should You Put More Towards Retirement Planning?
In some situations, it may make sense to put more of your money towards retirement planning. Some situations in which you may want to save more for your retirement include:
- You’re getting older and you’re close to retirement. In this case, you may want to make a retirement fund a top priority.
- If your employer matches the contributions you make to your 401(k), you may want to take the free money offered by contributing as much as possible to your 401(k) plan.
- If you have a small amount of debt, you may want to continue putting more money towards retirement while making minimum payments, since you’ll be able to eliminate that debt soon anyway.
- If most of your debt is a mortgage debt, paying off the mortgage may not be a priority, and it may make more sense to focus your money on your retirement savings.
When Should You Put More Money Towards Debt Elimination?
In some cases, it may make more sense to put more of your money towards paying your debts, particularly if you’re not receiving any retirement savings benefits from your employer and you’re far from retirement. Some of the reasons you may want to put more money towards your debts include:
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- Reduced debt may give your credit score a boost, which can help you get lower interest rates. This is particularly helpful if you plan to purchase a home or a vehicle.
- When you have less debt, you’ll have lower monthly payments. By paying off debt, your monthly expenses will begin to decrease, making it easier to free up cash in the future.
- Paying off debt results in lower balances, which means you’ll pay less interest. By paying more towards debt now, you can save a lot of money in interest in the future.
Of course, everyone’s financial situation is difference, so you need to set up a budget and savings plan that meets your needs. Keep these tips in mind and you’ll find it easier to figure out how much money to designate for retirement planning and how much you need to use for debt reduction.